- Timing Matters When Sending HUD Occupied-Conveyance Notices
- March 25, 2014 | Author: David Cliffe
- Law Firm: Weltman, Weinberg & Reis Co., L.P.A. - Cincinnati Office
With the ever increasing focus on collection and recovery from compliance, lenders, in their oversight capacity of the law firms handling their portfolios, are making deeper inquiries into their practices and procedures. One formerly esoteric area is the firm's policy for complying with HUD notice requirements in foreclosure actions. In the last month, I received questions from clients as part of their internal compliance review, pertaining to our firm's policy on sending out HUD conveyance notices to borrowers.
Due to Congressional mandates, HUD will typically not purchase a repossessed home unless it is unoccupied. Once HUD assumes ownership from the foreclosing mortgagee, the expenses of maintaining the premises are absorbed by the U.S. taxpayer. In order to reduce that cost, HUD requires the mortgagee to send a notice at least 60 but no more than 90 days prior to the date on which the mortgagee reasonably expects to obtain title to the foreclosed premises.1 The purpose of the notice is to inform occupants that they must submit a written request to HUD within 20 days should they wish to continue occupying the premises.2 If the occupants fail to tender the request or HUD rejects it, the property must be vacated prior to the acquisition of title.
A mortgagee must send the HUD occupied conveyance notice as a condition precedent to completing a foreclosure and taking title to the premises. If the mortgagee completely fails to send the notice, it may motivate the court to set aside the foreclosure sale. A failure to send the notice at least 60 days prior to the anticipated date of transferring title may create an impediment to the mortgagee transferring clean title or will, at the very least, delay the transfer of title until the 60 days expires. As a result, the firm representing the mortgagee will often err on the side of letting more time pass than less in sending out the notice before title transfers. An issue remains, however, of whether there is a consequence for sending the notice out prior to the 90 day time limit.
In mid-January, 2014, the United States Court of Appeals for the Sixth Circuit, which hears federal appeals from Kentucky, Michigan, Ohio and Tennessee, ruled that a law firm which mailed out its HUD occupancy letter to represented borrowers, while the underlying foreclosure action was in the discovery phase of litigation, did not violate the Fair Debt Collection Practices Act (FDCPA).3 Among the several alleged violations against the law firm regarding the notice, the Court’s opinion focused mostly on the timing of the notice. In rejecting the borrowers' argument that the defendant sent the notice with the intent of causing the borrowers to move out of the premises, the Court ruled that "it is simply implausible that a homeowner locked in foreclosure litigation with her mortgagee would pack her belongings and vacate the house upon receipt of the HUD-mandated occupied-conveyance notice, and it is concomitantly implausible that [the firm] sought that result when they sent the letter".4 The Court reasoned that the largest damage that receipt of a premature HUD occupancy letter would cause the borrowers would be for the borrowers to send a premature application to continue occupancy to HUD.5 Finally, the Court concluded that the FDCPA was not the proper vehicle for challenging the reasonableness of the decision of the mortgagee and its agent as to when the mortgagee is likely to obtain title and send the HUD notice based on that decision.6
Although the Court in Estep rejected the FDCPA as a vehicle for challenging the reasonability of the timing of sending the HUD occupied-conveyance notice, it never stated that there was no legal basis on which such a challenge could be brought. Rather than sending out the notice prior to judgment being granted, a preferable time for mailing would be once the judgment is granted and the sale is at the point of being scheduled. In Ohio, the HUD notice can be effectively sent to the clerk of courts for filing when the precipe to set the sale is sent. In Kentucky, the HUD notice can be sent once the master commissioner sets the sale date because the court will conduct a hearing after the sale date to formally approve the deed of transfer. At that point, all timing in the process lies within the control of county officials rather than the mortgagee. Although there is tremendous variance as to when the sale will actually occur from county to county, that variance is not caused by the mortgagee and the timing will at least guarantee that the mortgagee does not effectuate a transfer of title by having the deed completed to the mortgagee less than 60 days after the notice. Given the discretion allotted to mortgagees and their agents with the timing of mailing the HUD occupied conveyance letter, the mortgagee and its agents should further insulate themselves from any legal challenges to its exercise of discretion and any critical inquiries on the subject from a regulatory authority by mailing out that HUD notice at the time when the county manages the process.
1 See 24 C.F.R. 203.675(a).
2 See 24 C.F.R. 203.675(b)(3).
3 Estep v. Manley Deas Kochalski, 2014 U.S. App. LEXIS 1052 (6th Cir.).
4 Estep, supra, at p. 11-12.
5 Id. at p. 12.
6 Id. at p. 13.